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How to Calculate Employee Turnover

Do you know how to calculate employee turnover? Here are some tips for an effective employee turnover rate calculation

People Strategy
People Insights
Human capital

Anne-Marie Battista

Monday, May 18, 2015

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Do you work in a luxurious business? Prestigious coffee machines… trendy office designs… high turnover rate?!

Let’s face it: a high turnover rate is an expensive luxury that brings nothing to the business besides many disadvantages. Rest assured, employee turnover rate calculation, determining if it is too high, and acting accordingly are all possible!

But before we get into it, ask yourself these questions:

  • Do you feel like you are experiencing a shortage of labor 52 weeks per year?
  • Do you think it is just a normal phenomenon with the arrival of a new season?
  • Has there recently been a large number of departures of high-performing employees?

The answers to the questions above are all found mainly in the analysis of your business’ turnover rate. But first, here are a few definitions:

 

Why Psychometric Testing Leads to Employee Retention

We’ve recently entered into another round of hiring at Nubik. And that has reminded me, yet again, why I love using psychometric testing as an integral part of our hiring process. Working with an applicant pool comprised mostly of consultants and freelancers, I see a wide variety of experiences, education, and big-name former employers.

 

Turnover: a definition

The turnover rate is basically an indicator of your business’ health! It is a coefficient that indicates the ratio between the number of employees leaving the company and the total number of workers in the company, in any given period. This indicator needs to take a prominent place on your managerial dashboard, and should always be considered in your organizational strategies.

Don’t worry: “losing” and “winning” employees is quite common in a business. That being said, it is important to know whether this turnover rate is “normal”, or if it is a symptom of a weak organization where action needs to be taken.

 

Involuntary or voluntary departure?

In order to obtain a representative turnover rate, you must first and foremost distinguish between the nature of the departures: involuntary or voluntary.

 

Involuntary turnover: the employer’s decision

Involuntary turnover, or departure, occurs when an employee is forced to leave the organization by the employer. This departure, imposed by the company, includes: dismissals, terminations or layoffs, and is usually a result of lack of employee performance, hiring errors, team incompatibility, and conflict.

 

Voluntary turnover: the employee’s decision

Voluntary turnover, or departure, takes place when an employee decides to leave the organization, and can be caused by multiple factors. But regardless of the reason for their resignation, voluntary turnover can be positive or negative.

Depending on their nature, positive voluntary departures can be beneficial to an employer, especially if the employee did not meet the quality standards of their functions.

But let’s not kid ourselves, negative voluntary departures can also involve employees whose work met the company’s expectations, hence, representing a loss for the organization.

The nature of the voluntary departure should certainly encourage reflection among human resources managers. Exit interviews allow the organization to better understand the loss of a talent, and properly terminate the professional relationship with the departing employee.

 

Now, the infamous formula

Calculating employee turnover rate is not rocket science. It is about gathering some key data and applying the following formula. While all roads lead to Rome, it is also true that there are different formulas to determine the turnover. Here is the one we have picked for you:

 
This equation must be applied to a specific period of time. In general, it is calculated based on a full year, allowing you to compare the current turnover to the previous years’ rates.

Remember, when conducting turnover analysis, it’s important to go well-beyond the simple formula and use it as your base. Examine your overall turnover, your voluntary and involuntary turnovers separately, analyze different departments, and use different time periods. Going deep into the analysis will reveal the information you actually need and can use to take decisive action.

For example, a high turnover rate in one department can be skewing your data and make it appear as though your turnover rate is high, while in reality, a high turnover rate is “normal” for that department, and your efforts should be focused on another department (or even time period) where turnover rate is higher than it should be.

 

When we compare to others, we feel sorry for ourselves

Or do we? Once your turnover rate is established, compare it to that of companies in your industry. Be careful, though: we are not comparing apples and oranges! When comparing your data, limit yourself to companies that are in your industry.

The comparison might allow you to realize that what seems drastic at first, but that might just be a trend in your industry, or a sign of change to come. The opposite is also true, you might find that you are falling behind and that your employer brand and reputation are fading.

Be introspective: compare the current turnover rates to those obtained in previous periods. You will be able to notice changes in turnover and draw conclusions.

The turnover rate is a key indicator, make the most of it, take action and start working on retention plans! If you reach a dead end, don’t be afraid to ask for help!

 

Help! High turnover rates!

Initially, a high turnover rate sounds like bad news. But before you give in to despair, remember that all departures are not always negative. Some can be an opportunity for employees whose work was not adequate to leave the organization, thus giving you the chance to recruit a talented and qualified candidate, or promote a deserving employee and encouraging employee engagement!

When it comes to key employees leaving, make sure to avoid mass departures. Do not wait to see your best candidates leave to a competitor – that may cause your customers to follow as well. You have to be creative to enhance your employees’ loyalty.

 

How to Increase Employee Loyalty … Literally!

When you think of employee loyalty, what’s the first thing that comes to mind? Loyalty to task completion? Loyalty to people, to the organization, to the self? There are many layers to an employee’s devotion, and increasing it is no exception.

 

In this regard, a focus group or an internal survey could help identify key components of employee satisfaction and allow you to adjust your strategy to encourage employee loyalty.

A high turnover rate is certainly a good indicator of a problematic situation that must be overcome. Nonetheless, a low turnover rate is not necessarily a guarantee of perfect business health: if some of your best employees leave the company, it is important to question yourself and to establish an effective HR action plan.

 

For low turnover: loyalty or retention?

The dictionary does not provide the same definition for the concept of loyalty and that of retention. As a human resources professional, you should not either.

Loyalty implicitly maintains a way to create an attachment between the employee and the company through positive practices such as competitive pay, flexible work arrangements, or stock options. Successful loyalty is mainly the result of a proactive HR strategy.

Retention, on the other hand, is more reactive than proactive. Therefore, it has a certain element of risk: retention is about retaining an employee who had expressed a wish to leave the company. It is important to develop a strategy to address the dissatisfaction of an employee and convince them to stay.

That being said, the emotional connection of the employee towards the company, although somewhat changed, could still lead to a permanent voluntary departure. Think of it as a sign from the employee and seize the opportunity.

 

Make adjustments quickly

Employee turnover may be due to ineffective recruitment: if an employee is hired despite a profile that did not match the job, they can quickly leave an organization.

It is then imperative to review your staffing process: are your recruitment criteria sufficiently accurate? Is the job description representative of reality? Are some hires biased? For fear of difference of opinion, is the quality of candidates sought lower?

 
High turnover rate or not, staffing will always be part of the human resources tasks.

Make sure your recruitment is done the right way and for the right reasons. Closely monitor the turnover of your business and above all, consider maximizing human capital!

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